Earnings
Earnings refer to a company’s net income after taxes, representing its bottom-line profit over a specific reporting period.
Definition
Earnings are a company’s net profit after all expenses, taxes, and costs have been deducted from revenue. They represent the bottom line of a firm’s income statement and reflect its overall profitability.
Earnings are closely examined because they show how a company’s financial performance compares to expectations, historical results, competitors, and peers within the same industry.
How It Works
Earnings are calculated over defined periods, typically quarterly or annually, and are reported in financial statements. They indicate whether a company generated a profit or loss during that time.
Once reported, earnings can be retained within the company to support future growth or distributed to shareholders in the form of dividends.
Why the Term Matters
Earnings are a central measure of corporate performance and are widely used to evaluate financial health and business results. They provide a standardized way to compare companies across time and within industries.
Because earnings influence valuation metrics and financial comparisons, they play a key role in how companies are assessed in public markets.
Related Concepts
- Net Income
- Earnings Per Share (EPS)
- Price-to-Earnings Ratio (P/E)
- EBITDA
- Profitability
FAQs
What are earnings in finance?
Earnings are a company’s net income after taxes, representing the profit generated during a specific period.
How often are earnings reported?
Earnings are most commonly reported on a quarterly and annual basis.
What is earnings per share (EPS)?
Earnings per share represent a company’s total earnings divided by its outstanding shares.
How are earnings used in valuation?
Earnings are used to calculate valuation metrics such as the price-to-earnings (P/E) ratio.
Can earnings differ from cash flow?
Earnings can differ from cash flow because they include non-cash items and accounting adjustments.
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